An interview with Dr. Tony O'Driscoll of Duke University's Fuqua School of Business (part II)


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Prior to your academic career, you worked for 18 years within companies like IBM and Nortel, so you've had ample opportunity to observe from different perspectives the evolution toward “openness” in business. How is management coping with the shift toward open principles like meritocracy and open innovation?

Tony O'Driscoll: With difficulty. But this is to be expected.

Community platforms like Wikipedia enable the coordination and orchestration of capabilities around specific endeavors, as opposed to the command and control of resources by a central authority. Traditional enterprises have been built upon the concept of hierarchical central authority and economies of scale. In most real-world enterprises, revenue is often correlated with the size of the employee base. By contrast, web-based companies like Amazon, Google, eBay, MySpace, and Linden Lab hire a relatively small number of employees to manage their value exchange platforms and attract a large number of community members who leverage the platform in unique ways to create and capture market value.

In an increasingly digitally interconnected world, technology and enterprise structure are co-evolving at an accelerated rate. If you track the architecture of organizations over the past five decades, moving from centralized bureaucratic hierarchies with rigid boundaries to flatter topological structures with more permeable boundaries, it becomes increasingly evident that there is a syncopation with the IT architectures that underpin these enterprises: From the monolithic centralized mainframes, to the client-server model, to the peer-to-peer decentralized web that constitute today’s enterprise IT infrastructures.

Despite this shift however, most traditional firms have been unable to change their core strategy, structure, and operating and business models fast enough to accommodate the speed with which the web is flattening the playing field in business. I call this phenomenon structural lag. It is something that traditional firms need to address urgently if they wish to maintain their position of influence within the rapidly evolving business ecosystem.

What I observe in firms today is not a lack of knowledge about the issues they face, but a lack of understanding on what to do to change it. This is a classic “knowing-doing gap” problem. Knowledge is certainly a precondition to changed behavior, but knowledge alone is often insufficient to drive significant change within a traditional bureaucracy. While today’s enterprise leaders and managers may be well aware of concepts such as meritocracy and open innovation, the system within which they operate is not inherently designed to enable these principles.

For example, when I worked at IBM as part of the team that built the Strategy and Change consulting practice, we often talked about how consulting is essentially a meritocracy where those who provided the most value to the clients should be recognized and rewarded appropriately. Many traditional bureaucracies build structure, process, and infrastructure that is geared toward efficiency. In areas of the business where innovation matters more than efficiency, these core-rigidities create significant stumbling blocks to progress.

In the case of the consulting organization one such stumbling block was the set of practices and guidelines around compensation. Essentially, the existing policies did not provide us with sufficient latitude to reward our rock-star consultants. We essentially had a scheme where we gave bonuses once a year that were based on an aggregate score from input across all engagements for the year.

Many years later when I was studying how Guilds within virtual contexts such as World of Warcraft, Eve, or Everquest have devised compensation systems based on points systems where the “loot” for a given raid is decided upon by the group and doled out instantaneously, I remember telling myself, “this is exactly what we needed at IBM.”

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Tony O'Driscoll is a Professor of the Practice at Duke University’s Fuqua School of Business where he also serves as Executive Director of Fuqua’s Center for IT and Media, a research center dedicated to understanding the strategic, structural, operational, and business model issues associated with these vibrant and volatile sectors. Tony was a founding member of IBM Global Service’s Strategy and Change consulting practice, where he consulted with business leaders around the world on how to best leverage technology to create sustainable competitive advantage in an increasingly global, networked, and knowledge-enabled economy.

Next time: Tony tells us 3D learning environments... and his upcoming book.

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